Surprise: Bay Area Restaurants Disappear After Minimum Wage Hike

Frederic J. Brown / AFP / GettyJOEL B. POLLAK25 Jan 2017

Restaurants are rapidly going out of business in the Bay Area, after San Francisco passed a $15 minimum wage law in 2014 and the State of California followed suit in 2016. Yet the media are struggling to make the connection between high minimum wages and restaurant closures.

It is true, of course, that merely because one thing follows another does not prove that the second was caused by the first. The “post hoc, ergo propter hoc” fallacy that is familiar to first-year economics students would apply to this case as well. Yet that does not mean the prior factor should be excluded as a cause. But that is largely what the Times seems to have done, even though the closure of businesses and the loss of restaurant jobs is exactly what critics of the minimum wage hikes predicted.

There are certainly a variety of factors contributing to the squeeze in the restaurant industry. One is rising rents, as technology companies move from suburban Silicon Valley to the cities, lured by tax incentives and by the desire to be closer to workers who opt for urban lifestyles and dislike long commutes. Another factor is that many tech companies are installing their own cafeterias in order to keep employees on the premises. That means less dining out — and a smaller restaurant customer base.

The high cost of living in the Bay Area is another major factor, making it difficult to find workers nearby who are willing to work for the entry-level wages that restaurants can afford to offer. Low unemployment also means a labor shortage, the Times points out, which means those workers who do live nearby generally have more attractive employment options.

But higher mandatory minimum wages certainly have not helped. That is a fact the Bay Area’s left-wing votes may not be willing to face.